Seminars & webinars
17 September 2012

Information Acquisition under Ambiguity – Why the Precautionary Principle May Keep Us Uninformed


Where: Milan
Location:

Fondazione Eni Enrico Mattei
Corso Magenta 63
20123 Milan

***
Video-conference
at FEEM Venice

How to reach: Google map
Event's Timetable:


h. 12.00 Seminar

Information:

Seminars Office, seminars@feem.it

Speaker:

Daniel Heyen, Department of Economics - Heidelberg University

Abstract

Agencies charged with regulating food safety, pharmaceuticals, or industrial processes frequently need to take decisions in settings characterized by ambiguity. What rules should guide those decision? Since the 1990s, the Precautionary Principle (PP) has emerged as the preferred decision rule in policy circles, challenging traditional Cost-Benefit Analysis (CBA). We add to the debate on the relative merits of PP and CBA as the agency's rule from a novel angle, namely the impact of the choice of the decision rule on the agency's information gathering behavior. We find two countervailing effects. On the one hand, an agency mandated to employ the PP has a higher demand for precise information relative to CBA, affirming the common notion of the PP leading to better informed decisions. On the other hand, use of the PP leads to a reluctance to learn an inconvenient truth and hence to a lower demand for signal precision. For a broad set of parameters, this net result is that in settings in which ambiguity can be reduced, an agency employing the PP will prefer to stay uninformed. We discuss the implications for setting agency decision rules.

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Information Acquisition under Ambiguity – Why the Precautionary Principle May Keep Us Uninformed

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